Australian Agribusiness Group

The Australian
Agribusiness Group’s (AAG) has released its “top 10 golden rules”
of agribusiness to consider before making any investment decisions.

1. Understand the offering you are investing in prior to investment
Agribusiness investments all have different likely future cash flows.
When will you start to receive income? When will mature income levels
be achieved? As an example, olive trees can produce annuity style
income. They start to produce commercial crops in their third or fourth
year but it may not be until their fifth or sixth year that the
investment is cash flow positive and the seventh or eight year when a
peak and mature income level is reached. Timber projects are an example
of lump sum investments and may only produce income in one to three
years of a ten to 25 year investment.

2.
The investment must work without considering the tax and gearing aspects
The aim is to make money not just save tax this year and next. Whilst
gearing can amplify the returns it also amplifies the risks of an
investment.

3.
The returns must balance the risks
Returns for agribusiness offerings vary between commodities and
Managers. Returns should allow for the risks involved and provide a
premium above other investments with less risk.

4.
Consider the risks of the investment
Most agribusiness managed investment schemes (MIS) are illiquid
investments, meaning that you are in it for the long haul. In some
instances this is 20 years or more. This means that lots of things can
happen over the course of your investment. What is the manager doing to
protect your interests? Do you understand the agri sector? Have you
researched the crop?

5.
Make sure the manager has a solid track record of performance
Does the Manager have appropriate corporate governance practices? Has
the company managed the particular crop before? Do they have the skills
and experience and importantly the resources to manage your trees or
vines for example? Will they be there if things start to go wrong?

6.
Consider how the crop will be sold
Contracts and sales agreements provide you some security that the
promoter can actually sell the crop. Not all investments will have
contracts in place at the time of investment. Has the manger sold crop
from previous projects before? Does the manager have the resources and
people to handle this aspect?

7.
Diversification is the key
Like other investment sectors, don’t put all your eggs in the one
basket. Consider blending several investments together to spread risk
across crop types, managers, regions and cash flows.

8.
What commission rates are being paid?
Commissions are paid to financial planners for your investment through
them. Ask them what is the full extent of commissions being paid.
Consider a fee for service or discount broker if you are concerned, but
remember that commissions can reduce the upfront fees your adviser
charges you for your financial plan.

9.
Independent research provides an expert’s view
Ask for and read independent research reports on the investment
offerings before making any investment decisions. Australian
Agribusiness Group provides research on a substantial number of the
projects on offer and has a comprehensive understanding of the
requirements for a successful project. It is the only organisation that
provides separate ratings for corporate governance, track record and
this year’s project.

10. Product rulings are a must
The product ruling system provides certainty to potential investors in
the MIS industry confirming the taxation benefits for a particular
project, where the scheme manager complies with the commitments made in
the product ruling application. Note that some investments are not “tax
effective” and are along the lines of a unit trust style investment
offering. These don’t require a product ruling.

Managing Director of AAG, Marcus Elgin noted “investing in a pure tax
deduction is a feeble strategy. If you are going to invest in Agri MIS,
then follow the same rules you use when investing in property or
equities: research the sector, research the Manager, understand track
record and understand the offer”.

Only one research company offers planners and the public the tools they
need to make informed decisions – AAG.